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Intel Pulls Out the Big Guns

The biggest performance leap in 15 years puts Intel on top again. AMD is wounded, but far from dead.

Shanghai has been Shanghaied. There's no rosier way for an Advanced Micro Devices(NYSE:AMD) shareholder to look at today's launch of Intel's (NASDAQ:INTC) long-awaited Nehalem chips.

Intel calls the new lineup of server and consumer chips the "most revolutionary server processors since targeting the market with the Pentium Pro processor nearly 15 years ago." The Xeon 5500 series, formerly known as Nehalem, obliterates previous-generation Xeon chips in nearly every benchmark you throw at it. It also makes mincemeat out of AMD's finest Shanghai products under most circumstances.

AMD is certainly down at the moment, but hardly out. Knowing that Intel had Nehalem up its sleeve, AMD has stayed away from speed races recently. Its press releases now focus mainly on graphics products, putting pressure on rival NVIDIA(NASDAQ:NVDA) rather than inciting response from Intel. And the company is obviously working on its own next-generation chips, which will be produced at low capital costs by AMD's recently spun off manufacturing arm.

In the meantime, AMD can cling to a few niche markets where it still shows quite a bit of muscle, like eight-processor monster systems, which are some of the biggest beasts Sun Microsystems(NASDAQ:JAVA) can produce, and in low-end servers where price cuts on reasonably fast chips can make a difference.

Above all, it's not really a head-to-head battle at the moment. The entire chip market is so beaten down by this recession and the resulting IT budget cutbacks that you can think of Intel and AMD as rivals stuck in the same boat. It makes more sense to simply try growing back the lost total market instead of killing each other over a few points of market share. It's time to bake a bigger pie. Fight over the slices later.

Good showing, Intel. You have done a service to your faithful shareholders and provided a ray of light in an otherwise bleak landscape.